How To Behave In A Bear Market
Prisca B
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The stock market is plummeting! What do I do? The best thing to do in a bear market is to stand still.
Don’t stand still literally. But figuratively, you don’t want to make sudden or unexpected moves. You want to keep the strategy you have in place. Why? Because the stock market plummeting is not a new thing and will happen time and time again over your investing lifetime. Don’t believe me? I’ll show you. First, let’s go over some concepts.
READ MORE: Why Invest in the Stock Market Today
What is a Bull Market?
According to Investopedia, a bull market is a term used to describe when the asset prices in the financial market are rising for an extended period. So if you already invest, you’d notice that most of your assets are in the green for months or years at a time.
People in general love bull markets. Seeing all the green makes you feel good. The aspect some people don’t consider though is this is when buying into the market is the most expensive.
The average length of a bull market is a little over 2 ½ years. This does not mean you should not invest during a bull market. However, perspective is key. Bear markets last a long time but they don’t last forever.
So it’s important to create a plan for how you will react when encountering a bear market. If you don’t, you might be tempted to make choices that are not beneficial to your financial plan.
What is a Bear Market?
Investopedia defines a bear market as when a market experiences prolonged declines in asset prices. So if you are investing, you’re going to see a lot of red when you look into your investment accounts.
Bear markets make people uncomfortable, even those who have been investing a long time. But in the words of Murphy Lee, “Now what goes up must come down.”
The good part is that the average length of a bear market is a little over 9 months. During these bear markets, a stock, ETF, or mutual fund you have been purchasing at $70 can be sold now for $55. So you can buy the same asset for cheaper. Is getting the chance to buy assets on sale, not a great opportunity to make your dollar stretch further?
Why Bull and Bear Markets don’t matter
- You should not be investing money that you need in the near future. So the ebbs and flows of the market should not affect your money plans or goals, right?
- The goal should be to invest early and often regardless of the circumstances surrounding the market.
- Over the course of your investing lifetime, the market will go up and down. However, overall it has historically gone up. So unless there’s some reason to believe that our entire economy will collapse, there’s no reason to believe it won’t keep happening. And if it did, will your investments being in the crapper be something you’ll be focused on? Not likely.
Markets Patterns can Provide Reassurance
Let’s use visuals for extra reassurance. The S&P 500 was priced at $2553.17 5 years ago around this time. Today, despite the slump, it costs about $3871.98.
If you want to use the total stock market as an example, let’s look at Vanguard’s total stock market fund VTSAX. 5 years ago in October, it averaged a price of $64.44. Today, despite the slump, it is priced at $94.16.
Now you can compare these numbers as far back as they can go and you’ll see the same pattern. See despite the market going up and down, on average, it goes up. These slumps allow you to buy more of the same assets for less.
What Should You Do During a Bear Market?
Imagine being able to purchase things you already own for less than what you initially purchased them for. Wouldn’t you want to stock up?
While I’m not suggesting you find more money to invest in the market when it’s down, if it is within your power, continue your investment plan. Don’t stop contributing to your retirement accounts and stay the course with any other investment strategy you have in place.
READ MORE: Why You Should Have Money in an IRA Now
For as long as the pattern remains, the strategy should remain the same.
